In the Supreme Court of the United Kingdom

UKSC 2012/0076

IN THE SUPREME COURT OF THE UNITED KINGDOM

ON APPEAL FROM THE COURT OF APPEAL (CIVIL DIVISION)

[2012] EWCA Civ 26

BETWEEN:

(1)DAVID MITCHELL COVENTRY T/A RDC PROMOTIONS

(2)MOTO-LAND UK LTD

(3)TERENCE RAYMOND WATERS

JAMES EDWARD WATERS

Respondents/Defendants

- and -

(1) KATHERINE LAWRENCE

(2) RAYMOND SHIELDS

Appellants/Claimants

- and –

(1) THE SECRETARY OF STATE FOR JUSTICE

(2) THE LAW SOCIETY OF ENGLAND AND WALES

(3) THE GENERAL COUNCIL OF THE BAR

(4) THE ASSOCIATION OF BUSINESS RECOVERY PROFESSIONALS

(6) BURFORD CAPITAL

(7) ASBESTOS VICTIMS SUPPORT GROUP FORUM UK

(8) THE ASSOCIATION OF COSTS LAWYERS

Proposed Interveners

WRITTEN SUBMISSION ON BEHALF OF

THE ASSOCIATION OF COSTS LAWYERS

The Association of Costs Lawyer and the basis for seeking permission to intervene

The Association of Costs Lawyers (‘the ACL’) is the representative body for Costs Lawyers. The ACL was founded in 1977 (as the Association of Law Costs Draftsmen) to promote the status and interests of its members.

The ACL pioneered professional development for its members and its work was central to the elevation of law costs draftsmen to the status of qualified lawyers. Qualified, regulated law costs draftsmen (under the Legal Services Act 2007) are now given the title Costs Lawyer.

Until October 2011, the ACL both represented and regulated its members. In 2007, the organisation was appointed as a statutory authorised regulator under the Legal Services Act.As part of its compliance with the requirements of the Act, the ACL delegated its regulatory work to the newly-formed Costs Lawyer Standards Board.

The ACL is now a solely representative body, promoting the interests of Costs Lawyers to the legal profession, the Government and the public and is run by an elected Council with the assistance of executive andadministrative staff.

Its members are intimately involved in the day to day process of costs recovery of all kind, but in particular between the parties costs recovery in litigation. Both in its members and in its Council it has an unparalleled body of expertise and experience in the day to day process of costs assessment.

In respect to the instant case, ACL members have been at the forefront of the assessment of and advice and arguments in relation to the between the parties recovery of Success Fees and ATE premiums (‘additional liabilities’) throughout the time of the impugned regime under s. 58 Courts & Legal Services Act 1990.

In seeking permission to intervene, the ACL seeks to serve two main purposes;

To make available to the court its expertise and experience in relation to the main subject matter of the argument, namely the between the parties recoverability of additional liabilities. In particular, the ACL seeks to assist the court with its expertise and experience in relation to the workings of both the primary and secondary legislation and, perhaps equally importantly, the related secondary legislation and guidance (such as that relating to theapproach to proportionality and to the notification to an opponent of the use of funding arrangements of this type) and its practical application to assist the court in ensuring that all relevant aspects of the regime are properly considered when deciding whether or not it interferes with and, if so, it is a legitimate interference with, parties rights under Article 6 of the Convention (or Article 1 of the First Protocol);
To represent the interests of its members, in so far as those interests are put in issue by the matters raised by the issues before the Court. Those members have acted in assessments relating to the recoverability of additional liabilities (for both paying and receiving parties), have drafted Bills of Costs, Points of Dispute and Replies concerning these issues, have provided advice on those issues, including whether such liabilities should be sought, paid or disputed and, if so, in what sums, countless times. The issues raised in this case have potentially very significant implications for a substantial number of those members.

For the avoidance of doubt, ACL members act for both paying parties and receiving parties (and a wide range of interested parties, such as insurers) and its members represent both ‘sides’ of the debate. The ACL has no particular ‘Claimant or Defendant’ stance (though, as seen below, the ACL submits that the Claimant/Defendant divide is erroneous). The ACL does not seek to intervene on behalf of any particular party or faction, but rather for the reasons indicated.

The issue the ACL seeks to address

The background to this case and the judgments to date is set out elsewhere in detail and is not repeated here. The court’s judgment on the substantive issues is recited at [2014] UKSC 13, [2014] AC 822, SC.

Issue 9 in the appeal concerned the issue of whether or not the Appellant’s ability to recover a success fee under its CFA and/or an ATE premium constituted a disproportionate interference with the Appellants’ rights under Article 6 and/or under Article 1 of the First Protocol (‘the Protocol’) of the European Convention of Human Rights (‘the Convention’)

As the ACL understands it, the issue is now pursued by the First Respondent only.

By way of supplemental judgment [2014] UKSC 46, [2014] 3 WLR 55 the Court dealt with a number of issues consequential on the first judgment. At [32] to [43] Lord Neuberger rehearsed some of the arguments and directed a further hearing to provide for the opportunity for the Secretary of State for Justice to intervene on what was rightly identified as an important issue.

It is this issue that the ACL seeks to address. In particular, the issue in relation to the asserted infringement of Article 6 (the ACL respectfully agrees with Lord Neuberger’s provisional indication at [39] of [2014] UKSC 46 that the Protocol point does not take matters any further (and indeed submits that the Protocol point is flawed in any event)).

ACL’s position / concerns

The ACL does not seek to advocate for any particular party in these proceedings. Nor does the ACL seek to advocate for or against the recoverability of additional liabilities per se or to argue that the pre Jackson regime was better (or worse) than the post April 2013 regime.

However, having carefully considered the submissions of all other parties and interveners, the ACL’s broad position is that it is concerned that the submissions made on behalf of the Respondents arguably fail to properly reflect the workings of the pre Jackson regime and, in particular, arguably fail to recognise two key factors, namely:

That the pre Jackson regime was neither a Claimant, nor a Defendant scheme exclusively, but was an attempt to provide funding mechanisms to all potential parties to civil litigation with a view to enhancing access to justice generally (whether or not it ultimately succeeded in that aim). The scheme was available to and was used by Defendants and indeed the availability, inter alia, of ATE insurance to Defendants was one of the factors which provided a means by which such Defendants could, where appropriate, seek to mitigate the effects of between the parties recoverability of additional liabilities; and
That the scheme contained a number of checks and balances, in particular by way of notification requirements and by way of limitation on the sums that could be recovered from an opponent by way of additional liabilities, the proper operation of which, the ACL respectfully submits, this court ought to be fully aware of when reaching its decision and the effective consequence of which was a scheme which, whilst flawed, was a legitimate means of seeking to achieve a legitimate objective.

In consequence, the ACL’s submission overall is that the pre Jackson regime in relation to the potential between the parties recoverability of success fees and/or ATE premiums was (and in so far as it continues in operation is) compatible with Article 6 ECHR.

Further, that in the event that the Court had residual concerns that the practical application of that regime had the potential to cause consequences that would prima facie conflict to an unacceptable degree with another party’s rights under Article 6, that the same does not arise from any fundamental incompatibility on the part of the primary legislation, but would rather be likely to be a consequence of either the implementation of that regime through secondary legislation or, more likely, as a consequence of the interpretation by individual or appellate courts of how the regime and the wider regime for assessing costs under the Civil Procedure Rules should be implemented.

Accordingly, that the regime as a whole is and was one which was not inherently incompatible with Article 6 and that to the extent that the regime gave rise to the potential for any infringement the same could and should be addressed by a proper application, on a case by case basis of the existing secondary legislation and accompanying caselaw.

A process point

The position reached to date, as summarised by Lord Neuberger at [32] is that an award of costs in principle has been made, but there has been no assessment of those costs. Objection is taken to payment of the success fee and ATE premium. However, until the conclusion of any assessment, by order or agreement, it is not yet known whether and, if so, to what extent either a success fee or an ATE premium, or both, will be payable.

The sums claimed – at least at first instance – in relation to these items appear known. However, a fundamental part of the balancing process which, the ACL submits, is material to the consideration of whether the overall effect of the pre Jackson CFA/ATE regime is or is not compatible with the Article 6 right, is the courts’ ability to control the recoverability of additional liabilities through the relevant secondary legislation, that is to say the provisions of CPR 43 to 47 as in force at the material time.

What the effect of those provisions would be in the instant case is not presently known and, accordingly, whether the Respondents here would be liable to pay the additional liabilities at all, let alone in the sums claimed, is unknown.

It would appear to follow, therefore, that the issue before this Court is one of whether the potential liability to pay such sums in principle is sufficient to amount to an unjustified infringement of an opponent’s rights under Article 6.

The impugned regime

The Secretary of State of Justice has set out the details of the scheme and its history in its submissions dated 16th December 2014 and they are not repeated here. The ACL accepts and respectfully adopts that recitation.

By way of brief summary and submission, however, the ACL makes the following submissions.

The ability to recover an additional liability[1] from an opponent was not unfettered.

Firstly, an additional liability is an element of costs[2] and is subject to the same principles of assessment as any other element of costs. Accordingly:

Costs which were unreasonably incurred or which are unreasonable in amount will not be allowed (CPR 44.4(1));
Accordingly, a success fee and an ATE premium will only be allowed to the extent that they were both reasonably incurred and are reasonably in amount, having regard to the factors set out at CPR 44.5(3)) – the approach to the assessment of the reasonableness of success fees was clarified over a succession of cases – see, in particular U v Liverpool City Council [2005] EWC A Civ 475, [2005] 1 WLR 2657 and the cases considered therein and in relation to ATE premiums, Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134, [20078] 1 WLR 808;
On the standard basis, any doubt in this regard operates to the benefit of the paying party (CPR 44.4(2)(b));
On the standard basis, only costs which are proportionate to the matters in issue will be allowed (CPR 44.4(2)(a))[3] (the test of proportionality at the material time being that espoused in Lownds v Home Office [2002] EWCA Civ 365, [2002] 1 WLR 2450, the continued application of which is preserved by CPR 44.3(7) of the post amendment rules);
The proportionality limitation applied to additional liabilities in addition to base costs.

It is this latter point which might require some further consideration and which is the subject of some misunderstanding.

Application of the proportionality test to additional liabilities

Firstly, CPR 44.4(2)(a) did not disapply the proportionality criterion in the context of additional liabilities. It applied to all ‘costs’, an expressly defined term which expressly included additional liabilities (see CPR 43.2(1)(a)).

Secondly, CPR 44 PD 11 contained two pieces of guidance of relevance. Firstly, CPR 44 PD 11.5 provided that in deciding whether the costs are reasonable and (if relevant) proportionate the court will consider the amount of any additional liability separately from the base costs.

This did not disapply the proportionality criterion, but rather serves to confirm that the additional liabilities must be judged by that criterion, albeit separately from the base costs.

CPR 44 PD 11.9 provided that a percentage increase (success fee) will not be reduced simply on the ground that, when added to the base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate.

A number of points may be made in relation to this guidance:

It only applies to the success fee;
It does not prohibit an assessment of whether it was proportionate to incur the success fee or whether the success fee per se is a proportionate expense.

Accordingly, the criterion of proportionality applies, as a matter of principle, to both the success fee and ATE premium subject only to the guidance indicated above. Nothing in the primary legislation, nor in the secondary legislation itself (that is to say the CPR, as opposed to the PD) places any fetter on the application of the proportionality test and the only limitation is the modest one in the guidance provided by the PD.

The Court of Appeal expressly considered the application of the proportionality test to ATE premiums in Rogers v Merthyr Tydfil CBC (supra) at [102] – [105], the effect of which was to conclude that the cost of an ATE premium was a proportionate expense if it was a necessary expense. This was no more than a reflection of the Lownds approach to proportionality, and accordingly serves to confirm that ATE premiums were subject to the same test of proportionality (however effective or ineffective that was) as all other aspects of costs[4].

Notification requirements

The second fetter on recovery was provided by CPR 44.3B and associated provisions, (under the express heading ‘Limits on recovery under funding arrangements’).

This rule, and the associated provisions under CPR 44.15, CPR 44 PD 19 and CPR 47 PD 32 and paragraph 9.3 of the Practice Direction – Pre Action Conduct[5] provided a strict regime of notification with the practical effect that a party (whether Claimant or Defendant) seeking to use a funding arrangement which exposed an opponent to the risk of paying an additional liability was required to notify the opponent of that risk ‘as soon as possible’ and in any event pre issue.

In default, the party using that funding arrangement was prima facie prevented from recovering that additional liability on success, even if that additional liability was otherwise prima facie both reasonable and proportionate.

Accordingly, a Defendant was, at all times, on notice of the existence of any form of funding arrangement which would expose it to such a liability. Accordingly, it was able to fully take such potential exposure into account both (i) when deciding on what approach to take to the litigation and (ii) when deciding whether and, if so, to what extent, to use such funding mechanisms itself (for example, by way of taking out ATE insurance to cover the potential exposure).

The importance of such prior notification was recognised firstly by progressive strengthening of the notification requirements and secondly by the draconian sanctions that attached to failures to comply, absent relief from sanctions being granted.

The ACL submits that these fetters are important aspects of the Court’s consideration of the balance struck by the impugned regime and whether or not that regime went beyond what was necessary and proportionate to achieve the legitimate aim of promoting access to justice.

The four factors identified by Lord Neuberger

Four initial points were identified by Lord Neuberger in his second judgment, at [37]. The ACL’s response to these in general is that, on closer examination and consideration, those legitimately raised points can be seen not to result in the outcome that the impugned regime is incompatible with the Convention:

(1)That the Claimants had no ‘interest’ in the level of costs, whether base fees or additional liabilities

This is incorrect, as a matter of generality. It is undoubtedly correct that, particularly within the personal injury field, a form of Conditional Fee Agreement developed[6], colloquially known as a CFA ‘lite’ under which a solicitor would agree to limit some or all of the costs payable by a client (whether Claimant or Defendant) to the solicitor such that the client would have no liability (save in certain specified circumstances) for any ‘shortfall’ between what was recovered from an opponent and what would otherwise be payable under such the agreement. Indeed, such agreements persist post Jackson[7]. Such agreements do serve to limit the ‘interest’ the client has in the costs being incurred.

However, this is not inherent in the CFA regime and, in so far as a standard form of CFA could be said to have existed, this was not the standard form[8]. As far as the ACL is aware, it was not the form of CFA in use here.

Absent such express provision, which was absent in the majority of CFAs in the ACL’s experience, the client had a direct interest in not merely the base costs, but also the success fee payable under any CFA, namely that, to the extent that such costs were not recovered from an opponent the client was contractually liable to pay any shortfall.

Indeed, the use of a ‘standard form’ CFA gave the client an enhanced interest over that where a conventional retainer was used. The client’s liability for any shortfall under a CFA would not merely be for any shortfall in the base costs, but would be for those base costs plus a success fee on those base costs at whatever percentage the client had agreed to.

Moreover, as far as the success fee itself was concerned, whilst as a matter of generality it might be correct that, where the success fee was disallowed or reduced on a between the parties basis the reduced success fee would also apply on a solicitor-client basis, this was not the automatic consequence of any mandatory contractual or regulatory provision. The Law Society model CFA provided that this would be the case ‘unless the court is satisfied that it should continue to be payable[9]’. Other CFAs did not and such a provision was certainly not mandatory (at least following revocation of the CFA Regulations 2000 in November 2005). Accordingly, the client had a contractual ‘interest’ in ensuring the success fee was set at a reasonable and proportionate level.

It is undoubtedly correct, as a matter of general experience, that in the field of lower value personal injury claims (commonly the front line of between the parties satellite costs litigation) the market forces at work in that area seem to have led to a position whereby either model agreements were commonly used which limited the Claimant’s interest under such agreements or, perhaps more commonly, it simply became an accepted practice that solicitors would routinely, though not invariably, insulate Claimants from any liability which might have contractually existed under a CFA agreement (whether in relation to base costs, success fees or otherwise), and such practices appear to persist post Jackson. However, the development of such practices does not detract from the fact that the CFA regime generally does give a CFA client an interest, indeed an enhanced interest, in the costs (both base and success fee) being incurred under the CFA.

A similar position applies in relation to ATE insurance. Recovery of ATE premiums in full is not ‘guaranteed’ (though the guidance developed through the cases of Rogers v Merthyr Tydfil (supra) and Kris Motor Spares Ltd v Fox Williams LLP [2010] EWHC 1008 (QB), [2010] 4 Costs LR 620 at [46] has effectively required challenges to the quantum of such premiums to be brought on a properly founded basis).

The judgments in Kelly v Black Horse Ltd (SCCO, 27th September 2013, Chief Master Hurst) and Redwing Construction Ltd v Wishart [2011] EWHC 19 TCC are robust examples of the application of the proportionality test to claims for ATE premiums.

(2)That Defendants had no say in relation to the costs incurred.